Friday, January 2, 2015

Banking Union: ECOFIN and Parliament ready to compromise

Banking Union: ECOFIN
and Parliament ready to compromise

February 19, 2014 by

Ecofin Council of 18/2/2014. Yesterday the EU finance
ministers discussed the possible adjustments to the Council’s general approach
reached in December 2013, on the single resolution mechanism. (The Council of
the European Union, audiovisual services).

The absolute necessity to conclude before May the trilateral
negotiations on the functioning of the Single
Resolution Mechanism (SRM) for failing banks and clarify the role of
the Intergovernmental
Agreement (IGA) (in relation to the control and the use of the Single
Resolution Fund), united yesterday all the representatives of three
decision-making bodies of the EU, namely the Council (ECOFIN),
the Parliament
and the Commission. One reason that the May deadline appears final is
political. Undoubtedly, the next Parliament which is to be formed after the May
European election will certainly be much less cooperative with the rest of the
Brussels institutions. By the way this IGA body is composed by representatives
of the participating member states and has now been baptized Eurogroup+.

In any case, even if the next legislative is not
uncooperative, the complexity and the extent of the legal and financial
infrastructure of the European Banking Union will be a real ordeal for the new MEPs
to grasp. The present negotiation team members of the European
Parliament are familiar with the issues at stake after almost three
years of hard labour. The lead negotiators for the European Parliament are
Elisa Ferreira (rapporteur) (S&D, PT), Corien Wortmann-Kool (EPP, NL),
Sylvie Goulard (ALDE, FR), Sven Giegold (Greens, DE), Vicky Ford (ECR, UK),
Thomas Handel (GUE/NGL, DE), Sharon Bowles (committee Chair) (ALDE, UK).

The stalemate

As things stand now, the IGA, which according to the ECOFIN
wish will manage the Single Resolution Fund, is totally estranged from the
Parliament. Legally, it is a common international agreement between independent
countries, outside the EU
institutions. However the close interconnections between the IGA and the SRM
make the concession of the Parliament quite indispensable for the creation of
the Intergovernmental. Understandably, the non-EU nature of the IGA has caused
strong reactions from the Parliamentarians, who are now trying to confine its
authority.

The other and more important reason that the EU must come up
with a solid Banking Union within the next two months is economic and
financial. The Eurozone banking sector as it stands now cannot support the real
economy, with the much-needed credits, especially as the SMEs are concerned.
The anemic growth in the euro area, among other things, is a direct result of
the lack of bank loans to SMEs. Apart from the South, a lot more central
countries like Holland and Austria suffer of this lack of credits. Every month,
the European Central Bank announces a new decrease of the overall loan balance.
Without the Banking Union all Eurozone banks will continue functioning in a sea
of uncertainty and they will abstain from their regular activities.

In such a banking environment the European financial markets
have come to a stand-still. Only the very big business groups can find finance
outside the regular banking industry. The SMEs which account for more than 95%
of all business entities and produce almost three-quarters of new jobs are
facing a total loan scarcity. In the south of Eurozone the entire business
sector is practically cut off from any form of financing. One after the other
the large Greek companies transfer their seat to core EU countries, in the hope
to find financing through the stock market or otherwise.

The Parliament compromise

In view of this situation the European
Parliament negotiators appear ready to compromise with the ECOFIN
Council. The Parliament issued a Press release to put all that in a new
framework. It goes like this: “The EP negotiators reiterate their strong
resolve to reach a compromise with Council during the current electoral
mandate. But such a compromise must be a ‘good’ one … This means that the
following principles, among others, should be ensured:

* Decision making on individual resolution cases must be
credible, efficient and predictable…the political interference through the
involvement of Member States should be avoided since it adds complexity, slows
down the processes, and inevitably leads to power-politics…
*The Single
Resolution Fund must be single and equally accessible from the
start…The ‘national compartments’ of the Council model creates an un-level
playing field. Council’s mechanism also allows taxpayer money to be brought in
before exhausting the fund… To enable credibility, a repayable loan facility
should be established from the beginning of the building up of the Fund.
*The resolution mechanism will rely on the Single Rule Book established in the
bank recovery and resolution directive (BRRD)…
*The legal framework on which to base the mechanism (SRM) and fund (SRF) is the
Regulation.

For one thing the Parliament seems now ready to compromise
on the last issue; the legal framework, and accept a role for the IGA outside
the EU standards, but tied to the SRM Regulation. The
idea is to cut the powers of Intergovernmental Agreement and of the Council.
The ECOFIN wants the IGA to decide almost on everything when it comes to the
Single Resolution Fund. It also demands that the Council and its member states
to be able to reverse even the decisions of the Single Resolution Board, when
it comes to resolving a bank after the ECB has defined it as beyond limit of
repair. It must be noted that the SRB is foreseen in the draft Regulation of
the Single Resolution Mechanism, as proposed by the Commission on 10 July 2013.
According to it, the SRB is made up by representatives from the ECB, the
European Commission and the relevant national authorities.

The ECOFIN backs off

Yesterday however the ECOFIN
left to be understood that it may accept “A possibly better framing of the
Council’s (ECOFIN) role in order to limit its discretion and the grounds on
which it can raise objections to the SRB’s decisions, as well as a
simplification and, if possible, shortening of the decision-making process”.
This is what Ioannis
Stournaras the Greek minister of Finance and President of the ECOFIN
clearly proposed. In this way the ECOFIN comes nearer to Parliamentarianswho
demand that, “the political interference through the involvement of Member
States (ECOFIN) should be avoided, since it adds complexity and slows down the
processes”.

The ECOFIN seems also to accept a better framing of the
control of the SRB over the Fund. To this effect Stournaras estimated that
there might be “A review of the thresholds for the involvement of the plenary
(of the SRB), and of voting modalities, especially during the initial
transitional phase of the single resolution fund (SRF), to have a balanced
solution for the use of the SRF”. This means that the Council may accept checks
and balances on the role of the IGA in controlling the Fund. Now it accepts
that the SRB may have a say on the SRF. That’s why the Parliament stressed,
“The Single Resolution Fund must be single and equally accessible from the
start”. Obviously a lot of compromise is needed in this chapter for an
agreement to be finally reached.

ECB’s role sterengthened

Last but not least the ECOFIN appears now ready to accept an
increased role for the ECB. In this respect Stournaras noted that “A central
role for the European Central Bank in determining whether a banking institution
is failing or likely to fail, while the SRB should ultimately maintain a
possibility to effectively influence that function too”. The ECOFIN seems also
ready to follow ECB’s advice and cut down to five from ten years, the time
needed for the full mutualisation between the member states of the burden of
winding down a bank.

In short, the ECOFIN Councilis
ready to accept a compromise on its absolute control on deciding and funding a
bank resolution. By the same token the Parliament is ready to recognize the
need for an Intergovernmental Agreement, which will have a well-defined and
restricted control on the resolution fund.

ECOFIN Council

Giulio Tremonti
was the chairman for the Ecofin Council,
and is a trustee at the Aspen Institute
(think tank).

Margaret Thatcher
was a member of the House of Commons,
the prime minister for the United
Kingdom, and Charles D. Powell was
her private secretary & foreign affairs adviser.

David Cameron is
the prime minister for the United
Kingdom, and William J. Bratton
is his security adviser.

William J. Bratton
is David Cameron’s security adviser,
the New York City Police Department
commissioner, a member of the Homeland
Security Advisory Council, married to Rikki
Klieman, was the Boston (MA) police
commissioner, the Boston Metropolitan
Police superintendent, and the Los
Angeles (CA) Police Department chief.

Bratton Praises 'Two of New York City's Finest' (Past Research
on William J. Bratton)

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